WHY TENTH AND BLAKE SHOULD SCARE YOU

A few months back, we wrote some fiery op-ed pieces in regards to Tenth and Blake’s purchase of an equity stake in the Terrapin Beer Company. Some readers agreed with us that Terrapin was selling a piece of its soul to a MillerCoors subsidiary that put profit above all else. Others felt it was simply an inevitable business decision by Big Beer and that we should embrace the move as long as the quality of Terrapin’s offerings didn’t suffer. It’s a tricky scenario and your response to the situation mostly stems from how important the provenance of your beer is to you. If you only care about the taste of your brew, then these kinds of stories should be meaningless. Right?

Today I’m going to argue that WHO brews your beer is just as important as what it tastes like. I realize that I probably won’t be changing any minds with my prose…but I felt that it was time to articulate something that the Aleheads have been tangentially discussing since our inception.

Aleheads.com doesn’t exist for any one reason. We’re a cooperative made up of individuals with different viewpoints and each of us participates on this site for our own personal reasons. But one thing we all agree on is that, when applicable, we should at least attempt to serve as an advocate (and occasionally even a watchdog) for the craft brewing industry. And the industry has rarely needed strong advocates like it does today.

While overall beer consumption in the US has been in decline for a few years, the craft beer segment of the industry has been growing in leaps and bounds. That kind of disparity was bound to draw the attention of the twin titans of the beer world, Anheuser Busch InBev and MillerCoors (the US-based joint venture between MolsonCoors and SABMiller). They’ve made their presence felt in a variety of ways. They’ve fought local legislation which would make it easier for craft brewers to grow. They’ve dominated distribution channels to the detriment of all but their own products. They’ve even dabbled in brewing all-malt products of their own. While all of those strategies have had varying levels of success, none of them have really slowed the growth of craft.

MillerCoors, in a brilliant recent gambit, has taken the “if you can’t beat ‘em, join ‘em” approach with the development of their craft beer subsidiary, Tenth and Blake. Right now, the company has a fairly slim portfolio. Their flagship is Blue Moon, the ever-ubiquitous Belgian White which, in its defense, has served as a gateway brew for many a craft beer fan. But it’s not a true craft beer since it has always been a wholly owned brand in the Coors family. Tenth and Blake also owns the Leinenkugel name (makes of the infamous Summer Shandy) and Henry Weinhard’s Private Reserve (a legendary Portland brewery that Miller bought and shut down in 1999). In addition, a few European brews like Killians and Peroni round out the Tenth and Blake line-up.

None of those names really rile up the Aleheads since they either weren’t considered craft or were always a part of the Coors or Miller families. But the purchase of an equity stake in Terrapin raised red flags throughout the beer blogosphere. Terrapin is a respected craft brewer, particularly in the Southeast. They’re envelope-pushers who revel in tweaking traditional beer styles and brewing bold, experimental offerings. While the Terrapin co-founders, Spike and John, explained that the sale of a piece of their brewery to MillerCoors was actually a way for them to escape the demands of unreasonable investors, many Aleheads, including myself, felt the company had made a Faustian bargain.

And therein lies the problem and the point of this post. The truth is, Terrapin will probably not suffer from their connection to Tenth and Blake. As many commenters pointed out, Tenth and Blake seems to be a very shrewdly run business venture. It would not behoove them to adulterate the Terrapin brand or mess with a successfully run, growing business. I have no doubt that their intention will be to nurture Terrapin and to leverage the MillerCoors advantages (marketing, brewing capacity, logistics/distribution expertise) to expand and grow the brewery. If you love Terrapin’s beers and Tenth and Blake will make it easier for you to get them, then how could this possibly be a bad thing?

Here’s why. Tenth and Blake’s involvement with Terrapin (and, presumably, many other craft breweries in the coming years) may be good for the companies they buy a stake in. But it is NOT good for the industry as a whole. Craft is an industry built on organic growth. Look at companies like New Belgium, Sierra Nevada, Stone, or Oskar Blues. They’ve become large, regional players by growing intelligently and rationally. They enter new markets when they’re comfortable with their distribution in an existing market. And while they clearly care about profits and the bottom line, they never let their desire to earn a buck interfere with the quality of their product or their connection with their patrons.

Contrast that with MillerCoors…a publicly-owned company that is beholden to its shareholders and which only cares about dollar signs. MillerCoors has proven over the decades that they do not give a damn about their product. Take one sip of Milwaukee’s Best, Coors Light, or MGD 64 if you don’t believe me. What they DO care about is market share, margin growth, and stock value. Their marketing methods are atrocious. The current Miller ad campaign insinuates that only manly men drink their products and that women (and/or homosexuals) are a subspecies of human being that does not care about the taste of their beer.*

*In fact, in a piece reported by Adam Nason, the CEO of the First Beverage Group, Bill Anderson actually discussed how Big Beer’s low-brow, masculine marketing tactics have turned off women drinkers. This approach, he argues, has given the entire beer industry a poor image and has actually limited the ceiling growth of craft beer. In other words, those “Man Up” ads we’ve been mocking lately might actually be hurting every brewery in the country. Nice work, Miller.

Add all that up and you have a company that, no matter how well they talk the talk, simply can’t be trusted to be honest stewards of craft beer. But still…if they have no intention of affecting the quality of a brewery like Terrapin’s beers, then what’s the harm? The problem is that you need to stop looking at the Terrapin Beer Company in a vacuum and start looking at the industry as a whole. Think of craft beer as a long game. Left to its own devices, quality, organic growth, and intelligent leadership should win out. A company like New Belgium is becoming huge for a variety of “good” reasons. They’re well run. They make a good product. They pay close attention to environmental impact (which is becoming more and more important to consumers). When they realized that growing their brand on the East Coast would require an additional headquarters, they began looking at beer-centric, thoughtful markets like Asheville, NC as potential landing sites. You may not like New Belgium’s offerings (I myself am not a fan of their flagship Fat Tire), but you can’t argue that the company isn’t growing the “right” way. For me, as an Alehead, if New Belgium moves to Asheville and “wins out” over some of the local breweries there, it’s just the nature of the industry. In fact, when Oscar Wong, the founder of Asheville’s Highland Brewing Company, was asked about the potential for New Belgium and/or Sierra Nevada to open an East Coast HQ in North Carolina, he said this:

“As far as competition for us, it may kick our ass a little bit, but it’s the American way.”

That, in a nutshell, is what I love about craft beer. Respect. Honesty. It’s the way businesses should be run. Sure, New Belgium might hurt Highland’s bottom line. But it’s a level playing field between competitors…and may the best brewery win.

All of that changes when Tenth and Blake becomes involved. It’s no longer a level playing field when a company like MillerCoors sinks its claws into craft beer. The notion that they care at all about the industry as a whole is laughable. MillerCoors exists for one reason…to make money. With a brewery like Terrapin, they will ramp up production, market the hell out of the brews, and grow and grow and grow. That may sound like a good thing, but if you take a global look at the industry, the best analogy for what Tenth and Blake is doing is to liken them to steroids. You see, organic growth (like what New Belgium is doing) is akin to developing a muscle the organic way. You eat protein. You exercise. In the industry, that means using sound judgment, maintaining the quality of your product, and taking care of your customers. Tenth and Blake is like an injection of andro. It might “look” like the Terrapin muscle is growing with impressive results, but there’s nothing organic about it. And the growth of that muscle will have negative consequences for the rest of the body. New Belgium vs. Highland might be a somewhat fair fight. But Terrapin/MillerCoors vs. Wild Heaven or Monday Night Brewing in Atlanta is NOT. MillerCoors can simply flex their artificially grown muscles to take over package store shelves, taps, distribution channels, billboards, event sponsorships, etc. to push out the little guys. Sure, it might be great to have your favorite Terrapin offerings available everywhere. But at what cost? Maybe the nascent Georgia brewing scene gets stunted because MillerCoors has flooded the market with Terrapin products at the expense of all the other great, little craft brewers.

To me, that’s the crux of the Tenth and Blake problem. They won’t hurt the breweries they buy up (or buy equity in), but they WILL hurt the craft industry as a whole. They’re simply not playing the same game as everyone else (neither is InBev). The company has grown well past the point at which they could be considered responsible industry stewards. I’m not saying they’re truly “evil” as we may have hyperbolically implied on this site so many times…but their aims simply run counter to the those of the rest of the craft beer world. Read this quote from Tenth and Blake CEO Tom Cardella:

“Consumers want great beer. They are not overly concerned about how it is made or where it is from.”

I disagree with the second part of that quote…vehemently. I think the craft beer industry is thriving today precisely BECAUSE craft consumers care desperately about how their beer is made and where it’s from. Craft beer could never have survived during those tenuous early years if it wasn’t championed by obsessive local fans who knew their local brewers by name and could name every experimental offering ever served in their favorite brewery’s taproom. And we certainly wouldn’t be sitting at 1,800+ breweries today if people didn’t care about and support their local, independent, small craft breweries. I would argue that no industry is quite as “locavore”-focused as the craft beer industry. Look at cities like Portland, Denver, Asheville, and San Diego. The denizens there are maniacal about their local ale factories. Yes, they want great beer. But to say they’re not concerned about “how it is made or where it is from” is to miss the boat so completely that you might as well be wearing a life jacket.

Of course, maybe Cardella is right. Maybe people simply don’t care where their beer comes from. That’s why I’m writing this post. I want all of our readers to be educated consumers…but, more than that, I want us all to be vocal in our support for those breweries that grow the “right” way. I want provenance to truly “mean” something in the craft beer world.  I don’t feel that way because I think Tenth and Blake’s beers will be bad, mind you (again, I don’t think Terrapin’s offerings will suffer at all). But rather because Tenth and Blake’s involvement in the craft beer world can not help but have dramatic negative consequences for the industry as a whole. Those steroid-enhanced muscles might look impressive…and maybe they’ll lead to some gaudy home run totals. But, just like they did in baseball, Tenth and Blake’s “juicing” of craft beer players could end up ruining the game.*

*Slouch Sixpack pointed out another side effect of the Tenth and Blake steroid injection over e-mail yesterday. He noted that when Tenth and Blake gets involved in a region, it could put tremendous pressure on other local craft breweries to make a similar deal in order to keep up with the competition. Slouch’s biggest fear is that regional players could strike Tenth and Blake-type deals not because they want to, but because they have to if they want to avoid being at a huge competitive disadvantage.

Don’t turn a blind eye to Tenth and Blake’s impact on craft beer like so many baseball fans did during the steroid era. Don’t let them awe you when they saturate the market with your favorite local brews. Remember that it’s a long game…and that while you should care about the quality and taste of the product, you should also care about the health and well-being of the entire industry.

In my opinion, consumers have every right to hold the companies that produce the goods they purchase accountable. In order to do so, consumers have to be educated…which means they have to care enough to educate themselves. Usually, they don’t. Walmart has engaged in some atrocious business practices, but it doesn’t seem to have hurt their bottom line. Ditto Nike. But I think craft beer is a different animal. I think it’s an industry in which many, if not most, consumers ARE educated. Where they pay attention to the folks behind their favorite suds. When a brewery like Goose Island or Terrapin becomes linked to Big Beer, you will hear a loud, public outcry against the decision. And while it may not affect their bottom line right away (Goose has shown no signs of slowing down since the buy-out), remember, it’s a long game. It may be preposterously naive to think this way, but I’m hopeful that the “true” craft breweries will win that game. MillerCoors and Anheuser-Busch InBev had their decades of dominance…and they made the US into a punchline as far as beer was concerned. We’re finally back on top and now those swill-slingers (who are no longer domestic companies, by the way) want to stick their fingers in our craft apple pie.

Well, I’m an American. I want my apple pie made without the influence of a shady, multi-national conglomerate, thank you very much. And I want steroids out of baseball. If you’re an educated consumer, and you care about the future of the American beer industry, then you should want Big Beer to stay out of craft as well.

***********************************************

Addendum: The first few commenters noted that Big Beer’s involvement in craft breweries can only be detrimental to the overall quality of the product because of their bottom line focus. I think that’s a valid criticism, but I’m not sure it’s true in regards to the Tenth and Blake/Terrapin situation. For now, MillerCoors only owns a small equity stake in Terrapin. In fact, to still be considered “craft”, Terrapin could not have given up more than a 25% ownership stake in their company (I haven’t seen that number reported, but I’m sure it’s less than the 25% threshold). In other words, while MillerCoors is no doubt a very vocal minority owner…they’re still just a minority owner and thus can’t really adulterate the product (which, as I stated above, I doubt they would want to anyway).

The true purpose of this post wasn’t to complain about MillerCoors watering down Terrapin’s beers…it was to rail against the “unfair advantage” that Tenth and Blake gives Terrapin. Well…so what, you might ask? EVERY company looks for advantages over their competitors. What’s wrong with aligning yourself with one of the dominant forces in the beer industry to help you grow even faster? That’s why I likened Tenth and Blake to steroids. Craft breweries should grow based on wise strategy, careful selection of new markets, and, above all else, the creation of a high-quality product. Look at the way companies like Lagunitas, Bell’s and Ninkasi are growing for excellent examples of that kind of smart growth. But Terrapin has decided to “skip a few steps” and let MillerCoors ramp up their expansion through “artifical” methods. When Terrapin grows in leaps and bounds now, it won’t be by following the thoughtful strategies pursued by their peers…it will be through leveraging MillerCoors ridiculous competitive advantage over every brewery on Earth not named AB InBev. There’s nothing illegal about that…and the Terrapin owners have every right to make that decision if they so choose. But as consumers, we have every right to protest with our wallets. I STRONGLY believe that the best thing for the industry is for Aleheads everywhere to support those breweries that are growing the “right” way. By doing so, you encourage wise, thoughtful growth of the industry and you allow the best-run breweries to win out. If you support a brewery like Goose Island or Terrapin, all you’re doing is throwing your financial support behind the companies that were “lucky” enough to align themselves with the big boys before anyone else. To me, that is hugely detrimental to the overall health of the industry.

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17 comments

  1. agree 100%. you can NOT have those type of mega-mulit-shareholder driven multi-nationals involved in your community. They are NOT making beer they are sucking profit margins. THey WILL Change Terrapin and Goose island. ANY investor who THINKS they know what your product is but is really ONLY beholden to financial people will screw with your beer. always. and there will be many more sell-outs in the future cause its a hard business. But they will all hurt the industry as a whole.

  2. Agreed, Barley. These deals might help the breweries in the short term. The bottom line is that all that matters to these companies is the allmighty quarterly report, and sooner or later they will absolutely cut quality as a way to eke out a little more profit, and that’s a slippery slope…

  3. Spectacularly well-written post. I couldn’t agree more. I’ve long understood and been fearful of the tactics already employed and likely yet to be employed by AB-InBev and MillerCoors in response to the steady growth of the popularity of craft brew in relation to the steady decline of the popularity and consumption of mega-corporate conglomerate swill. I’ve been convinced for some time that the metrics indicate that we’ve reached the tipping point beyond which the conglomerate swillionaires can no longer ignore the economic realities. To be sure, they are still wildly profitable (or so we assume) but even the biggest dog on the block has to protect its margins and to that end, the AB-InBevs of the world will stop at nothing.

    Again, you hit this issue and arguments right on the 2 finger, dusky tan head.

    Cheers! (and if I may, I’ll toast to your logic by pouring the Terrapin Midnight Project Peaotch which I’ve had in the craft beer fridge for the past week or so)

    @TheAlemonger
    “Friends don’t let friends drink Bud”™

  4. Well Barley, you certainly hold a more nuanced stance than I do. Or at least a more verbose one. I’ll just say that my comment was in reference to the long term consequences of these things (not the specific Terrapin situation).

    And for the record – I wholeheartedly agree with your opinion on controlled/organic/thoughtful growth. You see it in other industries as well – the players who have a meteoric rise often get their feet kicked out from under them and leave behind a wake of destruction. Few people profit and the industry is weaker because of it.

  5. Jim Hicks · ·

    As a memeber of the brewing community with a independent craft brewery I do appreciate your passion for craft brewers “keeping it real” but I do argue a few points. What about craft brewers that contract their beer out the brewers that are not independent? What about brewers who are or were funded by large hedge funds that probably do more worst for American society that millercoors? I don’t know the nuts and bolts of the terrapin deal but what if millercoors plan is to allow terrapin to continue to grow their business organically and are really just giving then cash to make much needed improvements to their brewery. What if millercoors is learning a thing or two from terrapin on how to make great beer and in turn terrapin gets help with quality control and brewing efficienties.

    Believe me I am againt the big brewers and their business tactics. But I also can feel for the folks at terrapin when money is running out and you have no were to turn, with shareholders holding you back. Plus all in all I have heard more about terrapin in the last few months since this news than ever. I wonder how many ppl went out to try this beer and see what all the guff is about.

  6. Geoff Robinson · ·

    I think there is a premise that growth is inorganic if you get access to capital and grow faster than you would otherwise. That’s just weird and arbitrary. You might as well say that unless you started a brewery based on savings alone, not any bank loans or investors, your growth is inorganic.

    There are going to be a number of companies facing the same decision that Goose Island faced. You want to retire soon. You need access to capital. You don’t feel like dealing with a bunch of pain in the butt investors. Teaming up with a big brewery isn’t a bad option. Plus you get access to their incredible technical knowledge and distribution networks.

    Enlightened self-interest would seem to dictate that if the craft market is booming, you wouldn’t want to make your beer crappy to sell to that segment. Maybe for non-craft drinkers that are interested in the segment, but not an already established player.

    And if they do, there will be 10 new craft breweries to take Terrapin’s place. It’s not like they are making a style that no one does.

  7. @Jim Hicks:

    Do you know of any specific craft breweries that were funded by hedge funds?

  8. The game of any business is too make money. If you could team up with someone that would help you make money why not? Look at Redhook they teamed up with Budweiser and now they got an awesome location at Safeco Field.

    A popular theme of mine is: Beers are songs, brewers and bands; enjoy the music. No one wants to sell out in anything creative field. However if someone waved bunches of cash in my face….

    That is why the business model of Dave’s Brewfarm in Wilson, WI is so refreshing. His plan is to be a farm house brewery that prides itself on sustainability. “Why grow? We have everything we need. To grow would just be more headaches.”

  9. “Today I’m going to argue that WHO brews your beer is just as important as what it tastes like.”

    I’ve only gotten this far in your article and I’m ready to comment and agree. The reason I think it is so important is large corporations don’t brew beer, they make money. To them a beer is nothing more than a brand. Brands are commodities to them to be cultivated, bought, and sold. ABInBev does not buy beer companies, they buy brands. To get an idea of this, watch any episode of “How It’s Made” on History Channel where food or beer is featured. The executives walking the TV shown through the production are always referring to “The Product.” To them it does not matter what spits out at the end of the process, as long as it is a product to be sold.

    Now, I’ll continue reading.

  10. Is it a coincidence that the what was once the intersection of 10th Street & Blake Street in Denver, Colorado (which is now part of Auraria Campus) is the site of the former Tivoli Brewing Company who’s building now serves as the student union? Is that where the name came from?

  11. [...] of Tenth and Blake vary widely across beer circles. Some see the company as a real threat to ‘craft’. Others…a paper tiger…or a gateway to the category. Most of Tenth and Blake’s [...]

  12. [...] MillerCoors goes all-in: We’ve been talking about Tenth and Blake a lot at Aleheads, and 2012 will clearly be the year that MillerCoors’s “craft” division makes [...]

  13. [...] new strategy opens for MillerCoors. With the success of Blue Moon and the development of the Tenth and Blake “craft wing”, MillerCoors has clearly shown that they want to be in the craft business. It’s only logical. [...]

  14. [...] have put it better myself, Sam. In an older piece about Tenth and Blake, I likened their involvement with the Terrapin Beer Company in Athens, GA as something akin to a [...]

  15. Anonymous · ·

    You guys are ill informed. Do some research then ‘Rage against the Machine’ when you are better educated and understand the industry from a non-consumer standpoint.

    1. Helpful criticism as always, Anonymous!

  16. [...] the past year or so, Aleheads has posted some harsh words about MillerCoors’s infestation of the craft beer world via their craft wing, Tenth and Blake. [...]

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